Allergan PLC raised eyebrows last month when it announced its patent deal with an American Indian tribe in New York, transferring the rights for its eye drug Restasis to the Saint Regis Mohawk Tribe. The much-publicized maneuver, meant to let the tribe fight off patent challenges from generic drugmakers based on sovereign immunity, led to criticism and a recent slump in the drugmaker’s stock.
The latest blow came last week when the U.S. District Court for the Eastern District of Texas invalidated patents on its dry-eye medicine on grounds the patents cover obvious ideas. Allergan’s stock price dropped 5% on the day of the news. Its shares traded late last week at about $189 for a $63 billion market cap, off about 25% from the 2017 high of $256 in July.
Allergan said it plans to appeal and will take a “conservative approach as we plan 201,” given uncertainties around its blockbuster eye drug. Restasis generated $1.4 billion in revenue last year, second to Botox, which posted nearly $2 billion.
The fight will be a complex one as Allergan seeks to protect patents on two fronts: the federal court and the Inter Partes Review, or IPR, system.
Two Courts
Allergan was facing patent challenges, from generic drugmakers Mylan N.V. and Teva Pharmaceutical Industries Ltd. trying to force the drug off patent before the appointed time in 2024, in both federal court and through IPR, a system created by the 2011 Leahy-Smith America Invents Act. The proceeding is conducted by the Patent Trial and Appeal Board.
It took the unusual step of transferring the rights of Restasis to the Mohawks, paying the tribe $13.75 million up front. Allergan will pay the tribe $15 million annually to license back the patents for as long as they’re valid.
Joseph Mallon, a partner at law firm Knobbe Martens Olsen & Bear LLP, said the move was designed to let Allergan forgo an IPR procedure. American Indian tribes possess immunity from challenges under the IPR system but not in federal court.
Mallon specializes in chemical and pharmaceutical patents. Knobbe was ranked among the top 10 patent litigation firms by Corporate Counsel, a monthly print and digital industry journal.
“IPRs have made it easier for challengers to invalidate a patent,” Mallon said. In a district court, challengers must prove each patent claim invalid by “clear and convincing” evidence. IPRs, however, require only that challengers prove unpatentability by a “preponderance” of evidence.
IPR rulings don’t have more jurisdiction than federal court decisions. The former merely provides an additional forum where patent validity can be challenged. Allergan said the IPR process will continue to play out and is distinct from the district court decision.
The two legal processes operate independently of each other—the patent office is still reviewing the case, including the Mohawks’ claim that Restasis patents are protected by the tribe’s sovereign immunity. “If either forum invalidates the patents, then they are invalid,” Mallon said.
In a letter to shareholders, Allergan said it’s not aware of any FDA-approved generic products but said it will prepare for “the potential annual impact from generic competition on Restasis” when it reports its third-quarter earnings on Nov. 1.
Allergan declined to provide the Business Journal with additional comment.
IPR Concerns
IPR was created to address concerns related to patent trolls, or companies that obtain the rights to multiple patents in order to profit by means of litigation. The procedure, however, isn’t well-suited for all industries.
Mallon said patents have greater consequences for pharmaceutical companies.
“Patents are very important to provide incentives for [pharmaceutical] companies to engage in extremely expensive, risky clinical trials and drug development. If a few patents are invalidated in a [tech product], it’s not a big deal because it’s got hundreds more, but in drugs it’s different,” he said, pointing out that a high-tech product often carries hundreds, if not thousands of patents, while a drug has fewer than 10 patents.
Allergan Chief Executive Brent Saunders wrote in a letter to the Senate Judiciary Committee that the IPR process places “unnecessary and unfair burden on innovators of branded medicine by opening up patents to parallel and often inconsistently adjudicated challenges before both federal courts and the Patent Trial Appeal Board”—something the company described as “double jeopardy.”
The letter further said IPR has created a situation wherein patents already upheld in the federal court system are reviewed again with IPR challenges, resulting in “reverse trolls” that seek payment from biopharmaceutical companies in exchange for forgoing IPR challenges.
Saunders wrote that Allergan did the deal to avoid “unnecessary IPR review,” given that patents owned by a sovereign entity that claimed sovereign immunity, such as a state university, are exempt from the IPR process.
The tribe had no previous pharmaceutical investments; it operates casinos and other gaming operations.
Restasis received FDA approval in December 2002.
Dry Eye
Shire PLC, which received FDA approval for its dry-eye drug Xildra last year, saw its stock price drop in the face of the risk that generic Restasis could enter the dry-eye market as early as next year.
It filed a complaint against Allergan this month alleging “Allergan has, and will continue to use, bundled discounts, exclusive dealings, coercion and interference to unlawfully ‘block’ Shire from competing with [Restasis].”
Xildra is the first new drug, aside from Restasis, approved in the U.S. to treat dry eye.
Allergan got FDA approval for the TrueTear Intranasal Tear Neurostimluator, which it said is the first and only FDA-cleared device developed to temporarily increase tear production. The device is designed to complement Restasis, which is part of Allergan’s U.S. specialized therapeutics unit in Irvine. The parent company is now incorporated in Dublin, Ireland, with U.S. headquarters in Parsippany, N.J. It still employs nearly 1,500 in Irvine, where the company was founded.
